The combined employee benefit deficits of the Netherlands' fifty largest companies grew by €1 billion in the past year, according to the first "Pensions Accounting Briefing" report by LCP Netherlands.
The briefing document, launched today, is a first in the Dutch market and provides an insight into the costs and liabilities of Dutch companies with respect to pension schemes and other employee benefits. By analysing the pension disclosures of companies listed on the Amsterdam stock exchange, the report compares the different practices adopted by the largest companies and highlights the financial implications.
In 2010 employee benefit liabilities across the AEX and AMX companies increased from €179 billion to €200 billion, whilst the combined deficit stood at €25 billion (up from €24 billion in 2009).
The report also highlights new IAS19 rules which will apply from 2013 and could have a material impact on companies' reported profits. LCP Netherlands estimates that had the new rules applied in 2011, the impact of changing the expected return on assets element alone could have led to a €1.5 billion reduction in 2011 profits across the AEX and AMX companies. It is noted that the reduction would have been offset due to the new IAS19 rules removing the smoothing mechanism that is currently allowed. In addition, removing the smoothing mechanism - commonly called the "corridor method" - would have increased the balance sheet liabilities of the AEX and AMX companies by €17 billion based on 2010 figures.
Other key findings of the briefing show:
• As well as lower headline profits for companies, current pensions disclosures will be insufficient under the new version of IAS19
• Further de-risking into (Collective) Defined Contribution schemes and the elimination of IAS19 liabilities from the balance sheet are expected if the "Dutch Pensions Deal" is introduced. Irrespective of the Dutch Pensions Deal, all pension plans will require changes to be made during 2012 at the latest
• Acknowledgement of risk sharing under the new IAS19 standard is expected to have significant consequences for pension plans in some cases, but most importantly more pension schemes could be classified as Defined Contribution
Jeroen Koopmans, partner at LCP Netherlands said: "Pension schemes in the Netherlands are facing significant challenges with the advent of new accounting standards and the possible introduction of the Dutch Pensions Deal, which is likely to have far-reaching consequences for employees, employers, pension funds and insurers. Additionally, it's unlikely that these new standards will signal the end of changes in the way companies account for their pensions obligations, which could increase liabilities further. We estimate that if companies were required to value liabilities on a minimum-risk basis, for example, the increase in value of pension liabilities disclosed on the balance sheets of AEX and AMX companies could run to as much as €50 billion."
Alex Waite, partner at LCP said: "LCP works with clients across Europe and the first LCP Netherlands Pensions Accounting Briefing is a significant milestone, enabling us to share the expertise of our Dutch colleagues with clients operating in the Netherlands, and to help them face the challenges which are ahead."
The launch of the Dutch briefing builds on the success of its UK sister publication which provides a similar analysis of pension schemes across the FTSE 100. The 18th annual UK report was published in August, and showed a decrease in deficits due partly to the switch from RPI to CPI as the pension indexation measure.
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